Ch1 Verified Test Bank The Development of Accounting Theory

Accounting Theory and Analysis

13^th Edition

Test Bank

By

Richard G. Schroeder

University of North Carolina at Charlotte

Myrtle W. Clark

University of Kentucky

Jack M. Cathey

University of North Carolina at Charlotte

Chapter 1

Multiple Choice:

1. Which of the following bodies has the ultimate authority to issue accounting pronouncements in the United States?
   1. Securities and Exchange Commission
   2. Financial Accounting Standards Board
   3. International Accounting Standards Committee
   4. Internal Revenue Service

1. What historical evidence of the business operations of the private estate of Apollonius was discovered early in the 20th century?
   1. The Iliad
   2. Plato's Republic
   3. The Zenon papyri
   4. Pacioli’s work, Summa de Arithmetica Geometria Proportioni et Proportionalita,

1. Who has been given credit or developing the double-entry system of bookkeeping?
   1. Francis Wheat
   2. Fra Luca Pacioli
   3. A. C. Littleton
   4. William Paton
2. Which organization was responsible for issuing Accounting Research Bulletins?
   a. The Committee on Accounting Procedure
   1. The Accounting Principles board
   2. The Financial Accounting Standards Board
   3. The Securities and Exchange Commission
3. Which of the following pronouncements were issued by the Accounting Principles Board?
   1. Accounting Research Bulletins
   2. APB Opinions
   3. Statements of Financial Accounting Concepts
   4. Accounting Standards Updates
4. Which of the following was not a criticism of the development of accounting standards by the Accounting Principles Board?
5. The independence of the members of the APB. The individuals serving on the board had full-time responsibilities elsewhere that might influence their views of certain issues.
6. The structure of the board. The largest eight public accounting firms (at that time) were automatically awarded one member, and there were usually five or six other public accountants on the APB.
7. Harmonization. The accounting standards developed were dissimilar to those developed by the International Accounting Standards Committee.
8. Response time. The emerging accounting problems were not being investigated and solved quickly enough by the part-time members.
9. Which of the following is the professional organization of university accounting professors?
   1. American Accounting Association
   2. American Institute of Certified Public Accountants
   3. American Institute of Accountants
   4. Financial Executives Institute
10. What controversy originally highlighted the need for standard setting groups to have more authority?
    1. Accounting for stock options
    2. Accounting for derivatives
    3. Accounting for marketable securities
    4. Accounting for the investment tax credit
11. Which of the following committees recommended abolishing the Accounting Principles Board and replacing it with the Financial Accounting Board?
    1. Wheat
    2. Cohen
    3. Trueblood
    4. Anderson
12. Which of the following is a public sector accounting standard setter?
    1. FASB
    2. SEC
    3. APB
    4. CAP
13. Which of the following types of pronouncements now establishes generally accepted accounting principles?
    1. Statements of Concepts
    2. Statements of Financial Accounting Standards
    3. APB Opinions
    4. Accounting Standards Updates
14. Which of the following types of pronouncements are intended to establish the objectives and concepts that the FASB will use in developing standards of financial accounting and reporting?
    1. Statements of Concepts
    2. Statements of Financial Accounting Standards
    3. APB Opinions
    4. Accounting Standards Updates
15. What is the purpose of Emerging Issues Task Force?
    1. Provide interpretation of existing standards.
    2. Provide timely guidance on select issues.
    3. Provide implementation guidance within the Codification framework to reduce diversity in practice on a timely basis.
    4. Provide interpretive guidance
16. Which of the following is not a consequence of the standards overload problem to small businesses?
    1. If a small business omits a GAAP requirement from audited financial statements, a qualified or adverse opinion may be rendered.
    2. Small businesses do not need to keep financial records
    3. The cost of complying with GAAP requirements may cause a small business to forgo the development of other, more relevant information.
    4. Small CPA firms that audit smaller companies must keep up to date on all the same requirements as large international firms, but they cannot afford the specialists that are available on a centralized basis in the large firms.
17. Some accountants maintain that accounting standards are as much a product of political action as they are of careful logic or empirical findings. This belief is an example of the concept of
    1. Standard setting as a political process
    2. Standards overload
    3. Economic consequences
    4. The role of ethics in accounting
18. Financial accounting standard-setting in the United States can be described as:
    1. A democratic process in the sense that a majority of accountants must agree with a standard before it becomes enforceable.
    2. A research process based on empirical findings
    3. A political process which reflects actions of various interested user groups as well as a product of research and logic.
    4. A legalistic process based on rules promulgated by governmental agencies
19. The impact of accounting reports on various segments of our economic society is the definition of the concept of
20. Standard setting as apolitical process
21. Standards overload
22. Economic consequences
23. The role of ethics in accounting

18. Considering and understanding how business decisions affect the financial statements is

a. The sole responsibility of the Securities and Exchange Commission.

b. Provided in the auditor’s report.

c. Referred to as an economic consequence perspective.

1. Interpreted strictly by the company’s suppliers.
   1. Standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard.
   2. Standard-setters must ensure that no new costs are incurred when a new standard is issued.
   3. The objective of financial reporting should be politically motivated to ensure acceptance by the general public.
   4. Accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.
2. Which of the following companies was involved in an accounting failure that caused the public accounting firm Arthur Andersen to gout of business?
   1. Goldman Sachs
   2. Wachovia
   3. Enron
   4. AIG
3. The mission of the International Accounting Standards Board (IASB) is to
   1. Develop a uniform currency in which the financial transactions of companies throughout the world would be measured.
   2. Issue enforceable standards which regulate the financial accounting and reporting of multinational corporations.
   3. Develop a single set of high-quality and understandable IFRS for general-purpose financial statements.
   4. Arbitrate accounting disputes between auditors and international companies.
4. The Financial Accounting Standards Board (FASB) was proposed by the
   1. American Institute of Certified Public Accountants.
   2. Study Group on establishment of Accounting Principles (Wheat Committee).
   3. Accounting Principles Board.
   4. Study Group on the Objectives of Financial Statements (Trueblood Committee)
5. The body that has the ultimate power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the
   1. SEC
   2. APB.
   3. FASB.
   4. AICPA.
6. Which of the following organizations was established by the federal government to help develop and standardize financial information presented to stockholders?
   1. AICPA (American Institute of Certified Public Accountants).
   2. SEC (Securities and Exchange Commission).
   3. FASB (Financial Accounting Standards Board).

d. CAP (Committee on Accounting Procedure)

1. All the following are true regarding the FASB Accounting Standards Codification except:
   1. The Codification changes the way GAAP is documented, presented, and updated.
   2. The goal of the Codification was to provide one place where all authoritative literature about a particular topic could be found.
   3. The purpose of the Codification is to create new GAAP.
   4. The Codification was created to simplify user access.
2. International Financial Reporting Standards (IFRS) are issued by the:
   1. EU (European Union).
   2. SEC (Securities and Exchange Commission).
   3. FASB (Financial Accounting Standards Board).
   4. IASB (International Accounting Standards Board).

Essay

1. What is the difference between normative and positive theory?
2. Why is the development of a general theory of accounting important?
3. Discuss the evolution of accounting during the 1930s.
4. Discuss the evolution of the three private sector accenting standard setting organizations.
5. The independence of the members of the APB. The individuals serving on the board had full-time responsibilities elsewhere that might influence their views of certain issues.
6. The structure of the board. The largest eight public accounting firms (at that time) were automatically awarded one member, and there were usually five or six other public accountants on the APB.
7. Response time. The emerging accounting problems were not being investigated and solved quickly enough by the part-time members.
8. What were the purposes of the Wheat and Trueblood committees?
9. What was the purpose of the GAAP Hierarchy?
10. What were the four types of pronouncements originally issued by the FASB prior to the adoption of the FASB ASC?
    • 1. Statements of Financial Accounting Concepts (SFACs) and conveyed required accounting methods and procedures for specific accounting issues and officially created GAAP.
      2. Interpretations were modifications or extensions of issues pronouncements. SFACs are intended to establish the objectives and concepts that the FASB will use in developing standards of financial accounting and reporting. To date, the FASB has issued seven
      3. Statements of Financial Accounting Concepts which differed from Statements of Financial Accounting Standards in that they did not establish GAAP. Similarly, they were not intended to invoke Rule 203 of the Rules of Conduct of the Code of Professional Ethics. It is anticipated that the major beneficiary of these SFACs will be the FASB itself. However, knowledge of the objectives and concepts the board uses should enable financial statement users to better understand the content and limitations of financial accounting information.
      4. Technical Bulletins were strictly interpretive in nature and did not establish new standards or amend existing standards. They were intended to provide guidance on financial accounting and reporting problems on a timely basis.
11. Discuss why standard setting may be viewed as a political process.
12. Define the following terms
13. Economic consequences
14. Standards overload
15. Discuss the evolution of the phrase “generally accepted accounting principles”.
16. AICPA Accounting Research Bulletins and Accounting Principles Board Opinions that are not superseded by action of the FASB, FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, and FASB Staff Positions.
17. FASB Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and Accounting Guides and Statements of Position.
18. AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB and consensus positions of the FASB Emerging Issues Task Force (EITF).
19. Implementation guides published by the FASB staff, AICPA accounting interpretations, and practices that are widely recognized and prevalent either generally or in the industry.
20. What controversy caused the AICPA to issue Rule 203 that requires companies to use GAAP when issuing financial statements?
21. The flow-through method, which treated the tax credit as a decrease in income tax expense in the year it occurred.
22. The deferred method, which treated the tax credit as a reduction in the cost of the asset and therefore was reflected over the life of the asset through reduced depreciation charges.
23. Discuss the FASB ASC including the reasons for its adoption and the FASB’s goals in developing it.
24. Discuss the role of ethics in accounting.
25. What is a special purpose entity and how do they work?
26. How did the Sarbanes-Oxley Act change the way the FASB is funded?
27. Discuss the objectives of the International Accounting Standards Board.
28. To formulate and publish in the public interest accounting standards to be observed in the presentation of financial statements and to promote their worldwide acceptance and observance;
29. To work generally for the improvement and harmonization of regulations, accounting standards, and procedures relating to the presentation of financial statements.

These objectives have resulted in attempts to coordinate and harmonize the activities of the many countries and agencies engaged in setting accounting standards. The IASB standards also provide a useful starting point for developing countries wishing to establish accounting standards.